08 May How can I make this inherited IRA last longer?

Q. I just inherited an IRA from my uncle. I didn’t know the law had changed so I have to take out the money in 10 years. I was hoping to only take out the minimum until my own retirement. Is there any way around this? And what can I do to set up my IRAs so my kids, eventually, won’t have to take it all out at once?
— Beneficiary

A. We’re sorry to hear about your uncle.

You’re correct that the rules for inherited IRAs have changed.

The changes from the SECURE Acts of 2019 and 2022 include updates to the Required Minimum Distributions (RMDs) rules for individuals who own and/or receive, via a beneficiary designation, a retirement account asset, said Taylor Thomas, a certified financial planner with NCM Capital Management in Ramsey.

“These changes started going into effect as of 2020 and for the most part only a spouse and certain `eligible designated beneficiaries’ are able to take RMDs for longer than the 10-year period you addressed in your question,” he said.

The eligible designated beneficiaries are a minor child of the deceased account owner, disabled or chronically ill individual or an individual who is not more than 10 years younger than the deceased account owner, he said.

“If you do not fall into one of those categories, then you will need to fully distribute the account you received from your uncle in 10 years from the year he passed,” he said.

Depending on your income and other factors, there may be some tax planning that could help reduce the tax liability for these distributions, but you still need to fully distribute the account in ten years, Thomas said.

“As for planning for your children, unless the current RMD rules change by the time your children inherit your IRA, they will also be subject to the 10-year distribution rules, unless they qualify as an eligible designated beneficiary as noted above,” he said.

If you haven’t already, you might want to consider whether it makes more sense for you to fund Roth IRAs and/or 401(k)s now, which will depend upon your current tax rates versus what you believe those rates may be during your retirement years, he said.

“Additionally, a Roth retirement account is a great asset to pass down to children as the funds offer tax-free growth and distributions,” he said.

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This story was originally published on May 8, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.